Credit deflation and the reflation cycle to come (part 2)

[sancho panza]

53 minutes ago, feed said:

I think a lot of people just can’t see past the end of their nose.  So they look at the local region and think yes oil is done, they can’t comprehend that 2.6 Billion Indians and Chinese want the same standard of living as they have, they can only get it by burning fossil fuels and the only way the state maintain control is by giving them that increase in standard of living.  So oil is only going one way.  

But at the same time, that doesn’t mean they’re wrong locally.  

There is absolutely a change in personal travel taking place in the west and the lock down has brought it forward.  Personally, my car went in March.  I’ll be WFH for a year and if I’m only in the office a day a week when we return, then even now it’s cheaper to hire on the day than it is to own.  Other people are going to start to run the numbers, I expect 2nd cars to go first.  But this is transitional.  

What that will ultimately look like I have no idea. Whether it’s completely disruptive, the Auto manufacturer or traditional public transport.  But Millennials and gen Y, are stay at home generations, that don’t care about ownership.  And this can be seen in the fall in drivers licenses.

US data, but replicated in EU.

Young people are not getting driver’s licenses so much anymore. In fact, no one is. According to a new study by Michael Sivak and Brandon Schoettle at the University of Michigan Transportation Research Institute, the percentage of people with a driver’s license decreased between 2011 and 2014, across all age groups. For people aged 16 to 44, that percentage has been decreasing steadily  since 1983.

It’s especially pronounced for the teens—in 2014, just 24.5 percent of 16-year-olds had a license, a 47-percent decrease from 1983, when 46.2 percent did. And at the tail end of the teen years, 69 percent of 19-year-olds had licenses in 2014, compared to 87.3 percent in 1983, a 21-percent decrease.

Among young adults, the declines are smaller but still significant—16.4 percent fewer 20-to-24-year-olds had licenses in 2014 than in 1983, 11 percent fewer 25-to-29-year-olds, 10.3 percent fewer 30-to-34-year-olds, and 7.4 percent fewer 35-to-39-year-olds. For people between 40 and 54, the declines were small, less than 5 percent.

and 2014 was prior to the lift sharing companies really taking off.  

Cars are freedom is seen in boomer and Gen X demographics but that move to cars are a hassle the closer you get to younger generations.   

Ref bit in bold.I couldn't agree more.We had an excellent discussion a while back on some Art Berman data/arguments where @Cattle Prod put up some charts that showed the direction of travel for Asian oildemand and liek you say,people are obssessing about the US driving season.

There's no other way besides fossil fuels to deliver the growth in standards of livng that Chinese and Indian middle classes want.

As I've said previously,British people(and the West more generally) has lived off the exhorbitant privilege of their currenceis being strong for 50/60 years and they've borrowed up to the hilt to buiild huge welfare states at the same time.My view is that the funding of this has been done mainly by our own pension funds but also at the margins by foriegn buyers-and prices are set at the margins.

When these buyers dissappear(for whatever reason),the charade that is the British economy will change inexoarbly.

And this is where we differ,whislt I can see a lot of office workers working from home more,I think as sterling weakens we will see large scale manufacturing returning to the UK and that will possibly mean demand for cars staying constant

I lvie in leicester.In 1930 Leicester's popultaion was 230,000.Many of whom worked at mills and factories in the cirty and lived within walking distance.As the city's got rougher(no other way to put it),the well off have moved out.

What I'm trying to say here is that to have a decent size reduction in car ussage we need to see more people livng in cities.That is possible but currently the city is degentrifying and therfoere unlikely to draw people back in.

 

I've lifted the next quote from your answer to reply to specifically.

'Cars are freedom is seen in boomer and Gen X demographics but that move to cars are a hassle the closer you get to younger generations.   '

One last point about millenials not having driving lciences particualrly in the USA and that relates to family formation being at record lows ie people not having kids/higher numbers living with parents/huge student debt load inhibiting kids leaving home.Could be the reason behind that move but I havent' stuedied it.

 

 

[Yadda yadda yadda]

8 minutes ago, sancho panza said:

Cars are freedom is seen in boomer and Gen X demographics but that move to cars are a hassle the closer you get to younger generations.   

My neighbours, 30-something, bought a car in December. Why? They had a baby in January. Big driver.

A relative of mine got a day out at a race track for her 19th-ish birthday. Lives rural.

The whole lockdown palaver has made me re-evaluate not having a car. It would give more freedom to get away if needed.

[sancho panza]

51 minutes ago, Cattle Prod said:

Big defence spending plans announced this morning, including commitment to Type 32 ships.. Babcock has done well in the last month, are they going to build the Type 32s does anyone know? I think other countries will follow with increased defence spending. Very happy with my holding, BAE still looks expensive though, what do people think?

https://www.gov.uk/government/news/pms-record-defence-pledge-to-protect-scottish-security-and-jobs?utm_source=df432fa0-1e00-4235-8779-f856d4227411&utm_medium=email&utm_campaign=govuk-notifications&utm_content=daily

I wish Boris would forget his rocket from Scotland, and buy more ships!

I think we're headed to a period where we'll see increased defence spending as we head into some sort of contuing seismic changes int eh balance of pwoer worldwide over the next 20 years.World war in 20 years?possibly.But it may not involve the West.

Key themes

1) decline of US/NATO global military footprint

2) rise of tensions between new world powers-China/India

3) resurgence of Russia's global military footprint.

I link to an article here that's worht a read.I got it from a friend in that line of work.

Basically,it's all about drones and stopping them wiping out ground forces.But in the end it's all about ground forces dominating the ground.

I also personally think we'll see a resugence in navy spending as we seek to secure supply routes from various threats.

https://capx.co/the-war-in-nagorno-karabakh-has-big-lessons-for-the-british-army/

'The recent war in Nagorno-Karabakh, fought between Armenia and Azerbaijan, may well be an unusually fruitful seminar for the armies of the West. Fought between two semi-modernised, relatively evenly matched forces, a war that featured some remarkable displays of innovative high-tech weaponry ended the old-fashioned way, with the conquest of territory by ground troops. The lessons of this conflict should deeply influence the ongoing Integrated Review of the Army – although a persistent culture of British exceptionalism may yet get in the way.

That Azerbaijan, the richer and much more populous country, should win a war is not surprising. The manner of that victory was more so. The war in Nagorno-Karabakh will be remembered above all for Azerbaijan’s use of unmanned aerial systems [UAS] which gave rise to many of the infamous ‘snuff videos’, broadcasting the destruction of Armenian men and arms to a worldwide audience. UAS played a role in the destruction of well over a hundred Armenian tanks. It may be too early to declare that the age of the tank is over, but the age of the drone is well and truly here.

Without getting too deep into the tactical weeds, this summary illustrates that the holes in the British Army’s current arsenal are very severe indeed: minimal short-range air defence and electronic warfare capabilities – both critical to fight enemy UAS – and no loitering munitions of its own. Much of its artillery is outranged and obsolete, while its malfunctioning reconnaissance drone – Watchkeeper – stars in a charmingly forthright NASA case study of failed public sector technology development.'

 

[DoINeedOne]

42 minutes ago, Yadda yadda yadda said:

As I use Zipcar a bit of info about how it works and the pros and cons as I see them.

Cost is £60 per year plus usage fees.

Fees include fuel.

There are two hire options. Hire by the hour where you pick up or drop off at a set point. Charge by hour with a eight hours maximum daily cost. Or 'flex' where the previous user leaves it in any legal parking space within the zone of operation. This is charged per minute. I've checked my app and their are two parked a three minute walk away available now.

A lot of the fleet is now electric. These are the flex cars that are primarily for short journeys. Not a huge fan as I prefer manual cars.

It is definitely way cheaper than owning if you don't drive regularly. A full day is about as much as hiring a car Hertz. Much more convenient though. A short trip can be single digit pounds. No need to do maintenance, tax, insurance, etc. You can pay extra for zero excess of you want. There is a card to pay for extra fuel as you're supposed to return the ICE vehicles at least 25% full. You get access to vans also.

Downsides are thing like checking the car for damage every time you hire one. I'm a bit paranoid of missing some damage before starting and then getting charged for it later. I wouldn't want to rely on it if I needed to use it even once per week. The cost would soon mount up especially with one mid range journey in two directions spread hours apart. Not suitable for long journeys or going away for a few days.

There are at least two other 'car clubs' operating locally. One is through Enterprise rental and the other has a trendy name that I forget.

 

 

 

Rory Sutherland who's a interesting guy works in advertising for Ogivly (Advertising) and has some good views on human behaviour etc...

 

Not wanting to go on about cars to much but he had a friend who wanted to or did get rid of their car but hated the costs of taxis, trains that he would use randomly now and again as i think he lived in London most things were walking distance 

Rory said you need to frame it differently when you see that £20-£30 taxi or train cost come out of your main bank account with all the other day to day crap you just see it as a annoying expense and if i had a car blah blah blah

Set up a separate bank account and everything you spent on owning a car put in there as if you still owned a car  insurance cost, tax, fuel costs, MOT, leasing or finance costs, rough maintenance costs etc...

Now this is your travel account

Now that £30 taxi or train cost that you use now and again doesn't seem that bad when you see how much is going into that account that you would of been spending on owning a car

Probably explained that shit but the point was he was frustrated with travel costs even though it worked out cheaper than owning a car as most of the car costs are paid maybe once a year or month

 

But Rory is a interesting guy lots videos online of him

Whilst different people will need to travel less or more even me for example the car is just sat outside last used 5 days ago to pick up a order i could have got delivered and before that fuck knows

[JMD]

16 hours ago, Chewing Grass said:

This will be your everyday car, it wont need touch screens, self driving or any other fancy gizmos, it will be the 21st century equivalent of a Peugeot 106, will cost about 12K, have a 7 year warranty and will be made in China.

Yes your German SUV will be scrapped and its place on the drive will be taken by two little Chinese EVs with space to spare.

Great analysis, but please don't keep saying this out loud... i don't like it when Germany gets angry!?!

[spygirl]

23 hours ago, sancho panza said:

Intersting as you can see nicely the trebling in prices up to 2007 and then the plateau to today.This Barnsley,where my Mum is from.Clearly shows prices the same as 2007.Terraced hosues and flats(blue and orange lines) are actually lower than 2007.....

 

 

What you're actually see is the UK banking sector blow itself.

The HPI is a side effect that will rapidly reverse when IR go up.

Its quite amazing, looking at the period from ~1999 to 2007.

Less than 10 years.

A massive sector, around for 150+ years, employing 100ks. No bank run for ~200 years then~80% of the  UK banks and building society involved or propped up by UKGOV.

13 years later the UK is still fucked.

 

 

 

[feed]

9 minutes ago, JMD said:

Great analysis, but please don't keep saying this out loud... i don't like it when Germany gets angry!?!

One of the most protectionist states. Where  

What percentage of GDP is auto industry in Germany?  5%
The auto industry represents 5% of the country's GDP and 820,000 jobs, according to The Financial Times.9 Jan 2020.

That’s spend the last 4 years preventing a ROW – UK - Ireland – EU conduit to ensure there is no mechanism to avoid tariffs, allowing cheap import EV's from China, seems unlikely. 

[JMD]

15 hours ago, geordie_lurch said:

Musk demonstrated something like this years ago but it seems they never actually delivered this like a lot of things they demo

 

I'm not saying its all smoke and mirrors, but who believed that there was any jeopardy involved in that 'car test'?, plus I'm pretty sure i did catch sight of David Blaine just off stage in the wings.

[JMD]

15 hours ago, Cattle Prod said:

A great point, and I know you've said it before, so thanks for the reminder.  Katusa is talking abut current financing conditions projected into the future. Nonsense. To follow up on your point @JMD Katusa is fine, but he is a salesman. And a very good one. I give Eric huge credit for pointing that out afterwards though he is a friend and client of Katusas. You don't hear that kind of integrity often these days.

Yes, i like Eric as he doesn't suffer fools plus he's a real investor (unlike many podcast commentators) so respect his opinions. I also like Katusa, a former maths teacher, he's made loads from commodities, so again i listen to what he says, except for oil where he is obviously dementedly wrong (i hope so anyway)! They bring relevant real world information to the table, unlike people such as Hugh Hendry (who is a self-serving-self-promoting ar*e!)

[JMD]

19 hours ago, Loki said:

"You'll own nothing, and you'll be happy"

 

 

 

Almost as chilling as: 'Work sets you Free'.

[AWW]

Also used to use Zipcar. As soon as kids come along, it ceases to be an option, unless in the interim they've added integrated child seats and rear passenger tablets.

[JMD]

16 hours ago, sancho panza said:

 

He lost me at 'my ten point plan'.....the victory of experience over hope.

Yes, Boris Johnson is a liberal wastrel (illegal immigrant amnesties, family steeped in EU causes), Gove et al had their suspicions, and they were right. Didn't Boris once say he wanted to be World King?, probably that's why he's attracted to his Princess nut nuts (environmentalist). Don't get me wrong, their political predilictions don't automatically disqualify them from polite society, but 'conservatives' they aint!!!

[reformed nice guy]

1 hour ago, Yadda yadda yadda said:

My neighbours, 30-something, bought a car in December. Why? They had a baby in January. Big driver.

A relative of mine got a day out at a race track for her 19th-ish birthday. Lives rural.

The whole lockdown palaver has made me re-evaluate not having a car. It would give more freedom to get away if needed.

An effective contraceptive for sensible people is the number of seats in their family car

[JMD]

16 hours ago, feed said:

oh sure, but it's the same as everything else that gets discussed here re energy etc... 

Policy in US/EU etc.. is about protecting the established corporations and businesses whilst Indian/China have the growth driven by population expansion and increase in standard of living.  

So we'll see EV's and a change in business model to protect the Western Auto manufacturers whilst in India/China companies (alone or in partnership) will drive ahead (no pun intended) with local ICE manufacture. 

But isnt that a bit of a false narrative, directly comparing the East to the West? For example, the West no longer has an increasing or young population. Is it really just about 'Western' cronyism or protectionism? Isn't the real source problem the West is starting to face up to all about having to reinvent its Western economic model? We currently rely on ever growing gdp to sustain our (unpayable) debt. Apparently there is no alternative to monetary collapse to reset things. And Isn't this why that can keeps getting kicked? What economic model we get next will be interesting to learn about, i don't look forward to the next few decades of experimentation... but eventually/ultimately i guess it will simply be a return to a more human scale (Adam Smith) free market system.

[AWW]

24 minutes ago, reformed nice guy said:

An effective contraceptive for sensible people is the number of seats in their family car

And in case of accidents there's https://www.multimac.com/

[Yadda yadda yadda]

12 minutes ago, Cattle Prod said:

Where do you hire it? The closest one to me seems to be in London.

I'm in London. Technically inner London. I expect they or their competitors will be in all mid-size and larger towns within a few years. There is a minimum population size that will support them. Clearly there is a minimum usage rate for the costs to stack up. There also has to be slack in the system so that one is always available.

Only a few places here, the usual suspects  A lot more if you switch to the USA. Might give some indication of the size of town that it is currently viable in. Enterprise is more widespread despite being later to the game.

https://www.zipcar.com/en-gb/cities

https://www.enterprisecarclub.co.uk/gb/en/home.html

 

[AWW]

10 minutes ago, JMD said:

But is it just about 'Western' cronyism or protectionism? Isn't the real source problem the West is starting to face up to all about having to reinvent its Western economic model? We currently rely on ever growing gdp to sustain our (unpayable) debt. Apparently there is no alternative to monetary collapse to reset things. And Isn't this why that can keeps getting kicked? What economic model we get next will be interesting to learn about, i don't look forward to the next few decades of experimentation... but eventually/ultimately i guess it will simply be a return to a more human scale (Adam Smith) free market system.

This is my gut feel. There has been too much debt in the system since the early 2000s. But in order to keep a fiat system on the road, you need to keep increasing debt. I don't see how ever negative interest rates would help, as they would reduce the amount of debt.

"I think I read somewhere" that no previous fiat system has ever lasted longer than 40 years. Ours is approaching fifty.

[JMD]

16 hours ago, feed said:

In the West the major autos are terrified of 1 thing and concerned about another.

The change in demographics, millennials and gen Y, don't care about ownership and combine that with the rise of the ride sharing companies.  It's a huge disruptive influence that if they don't get ahead of they're done.    

I think the shift in generational thought, motivations, morality, etc, is so interesting - and as you point out, its key to predicting how companies capture future markets and orient their business models for success. Neil Howe in his Fourth Turning book talks a lot about these inter-generational changes. The Neil Howe podcast interview i posted last week had him discussing this topic in regards political frameworks. 

[Loki]

32 minutes ago, AWW said:

 

"I think I read somewhere" that no previous fiat system has ever lasted longer than 40 years. Ours is approaching fifty.

That's just because we have electrified plate spinning machines that previous generations didn't 

Without those enabling real-time fuckery it would have been the same story I think

[sancho panza]

43 minutes ago, Cattle Prod said:

So that's a sample size of two. Where can you get a handle on the state of the second hand car market, does Autotrader to stats I wonder?

Wolf had an intersitng piece a wek or two back.Sugar rush retial buy bigger car pushing prices/voluem up,then the likely collapse at some point in the not too distant.

I suspect we're in a similar place.I don't know of any good Britsh stats for used cars

https://wolfstreet.com/2020/11/13/used-vehicle-sales-slow-retail-wholesale-prices-drop-with-plenty-of-supply-after-crazy-price-spikes-over-the-summer/

The prices of used cars and trucks that are sold at wholesale auctions around the US dropped again in the week ended November 8, compared to the prior week, the 12th week in a row of week-to-week declines that followed a historic 36% spike from April through mid-August, according to data reported by J.D. Power on Thursday. Wholesale prices are now down over 8% from that peak but are still 6% higher than they’d been at the beginning of March. What a historic trip:

What these dealers are facing is a retail market that had gone haywire. Weirdest economy ever. During the three-month period of July, August, and September, retail prices of used cars and trucks spiked by 15.1%, according to the Consumer Price Index data. The 6.7% spike in September alone was the biggest month-to-month jump since February 1969.

But in October, used-vehicle retail prices, based on the Consumer Price Index for Used Vehicles, released by the Bureau of Labor Statistics on Thursday, ticked down 0.1% — “seasonally adjusted,” meaning it already accounts for any typical price declines in October:

 

 

[feed]

53 minutes ago, JMD said:

But isnt that a bit of a false narrative, directly comparing the East to the West? For example, the West no longer has an increasing or young population. Is it really just about 'Western' cronyism or protectionism? Isn't the real source problem the West is starting to face up to all about having to reinvent its Western economic model? We currently rely on ever growing gdp to sustain our (unpayable) debt. Apparently there is no alternative to monetary collapse to reset things. And Isn't this why that can keeps getting kicked? What economic model we get next will be interesting to learn about, i don't look forward to the next few decades of experimentation... but eventually/ultimately i guess it will simply be a return to a more human scale (Adam Smith) free market system.

Not so much a comparisons between east and west, but that the effect of a reinflation will be different.  Growth in India/China is easy to see.  But it’s more opaque in the EU, because the EU is a protectionist trading block and the corporations that run our stakeholder capitalism, if that’s what it’s now called, are protectionist in nature.   And that protectionism in the West may overwhelm the macro play.  
  
The funds that DB often talks about, for example, well if you cannot get access to them due to EU legislation, knowing that they will have value in a reinflation is useless.  What’s driving that  - capital controls.  
And with Cars, longer term use of ICE in the EU maybe better nationally or for certain demographics, but the protectionist nature from the new EV market, as it benefits the state and corporations over ride that.

So whilst we may see a more raw reinflation in the emerging markets, the effect here could be counter intuitive to both a reinflation or the current economic model.  
 

[feed]

14 minutes ago, JMD said:

I think the shift in generational thought, motivations, morality, etc, is so interesting - and as you point out, its key to predicting how companies capture future markets and orient their business models for success. Neil Howe in his Fourth Turning book talks a lot about these inter-generational changes. The Neil Howe podcast interview i posted last week had him discussing this topic in regards political frameworks. 

I did listen to that and it has put a few pieces into place for me. Particularly around the rejection of individualism.  

[sancho panza]

While Im on Wolf,this was a great piece of his summing up the current insanity.They are piling up the gunpowder in the hull of the ship.

Wolf does graphs with complex themes for laymen.

https://wolfstreet.com/2020/11/18/no-payment-no-problem-in-rosy-world-of-forbearance-official-delinquencies-plunge-credit-scores-of-delinquent-borrowers-jump/

So what happens to debt when borrowers stop making payments on their mortgage..?

Well, the algo of credit bureaus, such as Equifax, sees that the borrower who was delinquent has “cured” the delinquency and has become “current,” and it then raises the borrower’s credit score. A brave new world, but here we are.

Delinquent loan balances have plunged across all loan types, as these delinquent loans have been moved into forbearance or deferral programs, according to data from the New York Fed’s household credit report for the third quarter.

Auto loans are not backed by the government, and the deferral and forbearance programs have been implemented by private-sector lenders and loan servicers. Newly delinquent auto loan balances dropped to 5.8% of total auto loan balances, the lowest in the data going back to 2003. Note the delinquencies of auto loans during the prior crisis, when they exploded into the double digits. But this crisis now is the Best of Times:

Credit card delinquencies also plunge.

In this era of deferral programs and government cash sent to households, newly delinquent credit card balances also dropped during the crisis, instead of surging, as they did during the last crisis. Credit card delinquencies had been on the rise since 2016, during the Good Times. Then the Pandemic and the unemployment crisis hit, and surprise, instead of spiking, newly delinquent credit card balances fell to 5.7% of total credit card balances, the lowest since 2016:

Forbearance pushes mortgage delinquencies to record low.

The government guarantees or insures the vast majority of residential mortgages issued in the US.. These borrowers can live in their homes without making a payment for one year. When borrowers who have fallen behind on their mortgage enter forbearance, the lender can choose to mark the loan as “current.”  This “cures” the delinquency though no catch-up mortgage payments have been made. Newly delinquent mortgages therefore dropped to a record low of 2.5%, despite the crisis:

The New York Fed found that, “On average, delinquent borrowers whose loans were converted to ‘current’ upon entry into forbearance saw an average 48-point increase in their credit scores (here, Equifax Risk Score 3.0).”

But for borrowers who were not delinquent when they entered forbearance, their credit score was unchanged.

 

 

[JMD]

16 hours ago, jamtomorrow said:

I remember finding motorway journeys utterly utterly baffling around 2005 time - to see all those nearly-new mercs and audis, but with no obvious way for the general population to afford them (if you believed household income surveys).

It's not just low rates either, it's falling rates and people growing accustomed to each car being better than the last based on no particular change in discretionary income.

Middle classes in for quite the shock as this turn unfolds.

Agreed. We are at an economic cycle turn, and it is fascinating to ponder whether products/concepts like car ownership, aircraft/international travel, cinemas, etc, will diminish greatly or even maybe become very niche by 2030.

The discussions about changing business models and of leasing is not just 'a car thing' either. I remember in the late 1990's there was talk of hiring quality tools, instead of buying/owning them, examples included lawnmowers, etc. So its not a new concept (what is?). However, i believe it was the German manufactures, Bosch, etc, who were particularly keen on those ideas. I wonder if German industry - from Mercedes to fridges - will be sustained in future years by widespread adoption of a lease/rent model, and rolled out across all Europe (perhaps under the guise of sustainable manufacture and 'environmentalism')?

[Yadda yadda yadda]

16 minutes ago, sancho panza said:

When borrowers who have fallen behind on their mortgage enter forbearance, the lender can choose to mark the loan as “current.”

Enron would approve.